Potential for oil market deficit in 2024 as demand expectations grow – IEA

Tom Brown

14-Mar-2024

LONDON (ICIS)–Higher oil demand expectations and fresh production cuts from the OPEC+ alliance could push the 2024 crude market balance from a surplus to a slight deficit if the voluntary reductions remain in place for the rest of the year, according to the International Energy Agency.

Q1 crude oil demand is likely to be higher than the agency initially forecast on the back of a stronger economic outlook for the US, which is likely to buoy total consumption growth for the period to 1.7 million bbl/day.

A stronger early 2024 demand forecast drove a 120,000 bbl/day increase in full-year estimates, with the IEA now projecting 1.3 million bbl/day consumption growth.

The IEA projection remains substantially below OPEC forecasts of 2.2 million bbl/day, but it has repeatedly increased its projections, growing 400,000 bbl/day from the agency’s 900,000 bbl/day forecast in October 2023.

Supply declined quarter on quarter in January-March as demand firmed, dropping 870,000 bbl/day during the period on the back of extreme weather disruptions and voluntary output curbs from OPEC+.

The cartel and its partners recently announced plans to extend curbs into the second quarter of the year, with the IEA saying in its latest oil market report that the baseline assumption is now for those measures to remain in place through 2024.

“On that basis, our balance for the year shifts from a surplus to a slight deficit, but oil tanks may get some relief as the massive volumes of oil on water reach their final destination,” the IEA said.

Declining onshore oil inventories, along with trade dislocations from Russia and the impact of Middle East tensions on ocean trade flows has substantially shifted the balance of reserves towards ‘oil on water’, according to the IEA.

Repeated attacks on tankers in the Red Sea intensified this trend last month, with 1.9 billion barrels of oil ocean-bound as of the end of February, according to the IEA, the second-highest figure since the height of the pandemic.

Despite growing 2024 demand expectations over the last few months, the IEA continues to project that oil consumption is reverting back to its historical trend as the pandemic-era rebound tapers off and electric vehicle sales grow.

Non-OECD countries are expected to comprise the vast majority of consumption growth this year, but demand from China is expected to crater, although it will remain the most pivotal sales driver for the industry.

“[China’s] oil demand growth slows from 1.7 million bbl/day in 2023 to 620,000 bbl/day in 2024, or from roughly three-quarters to half of the global total, under the gathering weight of a challenging economic environment and slower expansion in its petrochemical sector,” the IEA added.

The agency estimates that the OPEC+ bloc had 5.72 million bbl/day of effective spare capacity compared to February, with 5.34 million bbl/day of that total from the core OPEC member states. One country, Saudi Arabia, accounted for more than half of total OPEC+ spare capacity, at 3.12 million barrels.

Focus articled by Tom Brown.

Thumbnail photo source: Photo source: Jose Bula Urrutia/Eyepix Group/Shutterstock

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